PenCom moves against using pension accounts for money laundering

As part of the efforts to prevent workers from using their pension accounts for money laundering, operators will begin to investigate workers who make voluntary contributions of N5m and above into their Retirement Savings Accounts.

The National Pension Commission disclosed this in its new guidelines for voluntary contributions under the Contributory Pension Scheme.

A section of the guideline read, “In line with the Money Laundering Act 2011 and Nigerian Drug Law Enforcement Agency requirement, Pension Fund Custodian shall report any single voluntary contribution lodgement of N5m and above. PFC shall forward a copy of the report on such lodgement to the relevant Pension Fund Administrator.”

The commission had earlier stated that it became imperative for it to review the provisions for voluntary contribution under the CPS to address some concerns which include combating money laundering, after it observed high incidence of withdrawals.

Additional voluntary contributions are savings made over the statutory minimum of 18 per cent mandated by PenCom.

It stated, “The circular was necessitated by the observed high rate of withdrawals from the voluntary contributions by pension contributors, which appeared to negate the main purpose of augmenting pensions at retirement. In addition, the commission was also concerned about ensuring strict adherence to anti-money laundering provisions and payment of relevant taxes.”

Due to this action, the commission said it was providing further support to the current administration’s main thrust of enhancing transparency in all facets of economic activities.

It added that the main thrust of the circular was that voluntary contributions could only be withdrawn once in every two years, while subsequent withdrawals would be on incremental contributions from the last withdrawal.

The commission noted that the Pension Reform Act 2014 allowed employees to make voluntary contributions into their RSAs in addition to their mandatory pension contributions, with the sole aim of enhancing their retirement benefits.

It explained that voluntary contributions under the guidelines would be non-obligatory contributions made by any employee in the formal sector through the employer.

“Section 4 (3) of the PRA 2014 provides a platform for an RSA holder to make voluntary contributions, in addition to the statutory contributions being made by him and his employer,” it stated.

According to the guidelines, voluntary contributions will be made from employee’s legitimate income, which shall not be more than a third of the month’s salary in line with the Labour Act, 1990.

It added that all voluntary contributions made by the active or mandatory contributors shall be retained in the RSA for a minimum of two years before access.

The PFA, it added, would ascertain the portion of the contributions that qualified for withdrawal based on the two years’ rule, before withdrawal by an applicant.

For active contributors, it added that the voluntary contributions section of the RSA statement would be divided into two which are.

“50 per cent shall be the contingent, available for withdrawal, as stated in Section 5 of these guidelines; and 50 per cent fixed for pension shall only be utilised at the date of retirement to augment pension,” PenCom stated.

As provided in section 10 (4) of the PRA 2014, any income accrued on voluntary contributions would be taxable in accordance with relevant tax laws, where the withdrawal was made before the end of five years from the date the voluntary contribution was made.

“The tax deductions shall be based on both income earned and principal amount when withdrawal is less than five years for the exempted, foreign, retirees under the defunct Defined Benefit Scheme and retirees under the CPS,” the guideline read.

PenCom stated that the extra savings made by the worker would be remitted and treated as voluntary and not mandatory contributions.

“PFAs shall be required to review the status of each registered contributor and classify the contributions remitted in the RSA as voluntary and mandatory,” it added.

Where an active or mandatory contributor retired from their employment, it added that the balance of their “fixed” voluntary contribution would be consolidated with their accumulated statutory contributions and accessed either as Programmed Withdrawal or Retiree Life Annuity in line with Section 7 of the PRA 2014.

“At retirement, the contributor shall sign a consent form which would indicate the total sum of the contingent contribution (if any) to augment the pension,” the guideline read.